Define 'economic cycle' (Extract B, line 13).deflation.Using Extract A, calculate to one decimal place the percentage change in UK realGDP from the first quarter of 2008 to its trough in the third quarter of 2009.Using Extract A, identify two significant points of comparison between UK realGDP and productivity over the period shown.

Context 1 Total for this Context: 50 marks CYCLICAL FLUCTUATIONS IN THE UK ECONOMY Extract A: UK real GDP index and productivity index, quarterly, 2008 Q1 = 100 100 Key - GDP --- Productivity 98 96- 95- 94- 93- 92 2008 Q3 2009 19 Q3 2010 Q3 2011 Q3 Q3 2013 Q3 Q1 Q1 Q1 Q1 Q1 Source: Contains public sector information sed under the Open Government Licence v2.0, February 2014 Note: The measure of productivity shown in the chart is output per hour worked for the whole economy Extract B: Is the recovery in the UK economy ever going to take hold? After the period of prolonged growth, known as the NICE (non-inflationary, constant expansion) decade, in 2008 the UK entered the worst recession it has experienced since the Second World War. The trigger for the downturn was the problems experienced in the world's financial markets and the subsequent credit crunch which occurred when bank lending was severely restricted and the cost of borrowing rose rapidly. Although 5 some economists believe that the underlying cause was the expansionary policies that were pursued by governments around the world. These policies led to an unsustainable boom and an unavoidable recession. The UK economy started to recover in the last quarter of 2009, but the recovery has been weak and faltering. The latest figures for the fourth quarter of 2013 show an increase in 10 real GDP of just 0.7%, and an overall growth figure for 2013 of 1.9%. Whilst encouraging, output is still 1.3% below its pre-recession levels. Indeed, this is by far the slowest recovery from any recent downturn in the economic cycle. The previous 'record' was held by the recovery from the 1973 recession, which took just over three years to properly take hold. Presently, this recovery has been underway for virtually six years: clearly the 15 economic problems in Europe and the rest of the world have hit confidence substantially. Households have cut back on consumption and firms have been reluctant to invest Source: News Reports; February 2014 Extract C: Is a rise in inflation inevitable? The recovery in the UK economy has been fairly weak and yet inflation has only just returned to the Government's target of 2.0%, having been way above it for the past four years. Above-target inflation has been blamed on rising world commodity prices, increases in Valued Added Tax (VAT) and the fall in the exchange rate. According to the Bank of England these are temporary factors. However, if inflation is above target when the recovery is weak, unemployment is high and there is plenty of spare capacity in the economy, what will happen when the pace of the recovery quickens? Is a further rise in inflation inevitable? At present, wages are only increasing slowly and there is little evidence to suggest that people expect inflation to rise. In the eurozone area, interest rates were recently reduced due to concern about the possibility of deflation. 10 When the recovery properly takes hold, it is likely to be accompanied by an increase in investment and, subsequently, by a rise in the rate of growth of labour productivity. An increase in the productivity of labour will help to offset the inflationary impact of any increase in wages, so perhaps the UK should consider the possibility of deflation too. 15 Source: News Reports, February 2014